2019_2q_omron_e

7/42 Operating Income Analysis, Y/Y

The next slide is a waterfall chart showing the changes in key elements contributing to the Y/Y change in operating income. The ￥43.5 billion on the left is the operating income for H1 FY 2017; the ￥36.6 billion on the right is the H1 FY2018 operating income. IAB and HCB drove significant increases in added value but as a result of continuing to proactively execute on investments for future growth, SG&A and R&D expenses increased, leading to the Y/Y decline in profits. The breakdown of the increased SG&A and R&D spending was approximately 60% for IAB, approximately 20% for HCB and approximately 10% for HQ expenses, such as core technology development and IT systems improvements. Within IAB, the increased spending was the result of building new Automation Centers, which are the core contact points for our customers, as well as hiring more sales engineers. The increase in fixed manufacturing costs reflects efforts to expand manufacturing capacity for IAB, and, at EMC, the transfer of manufacturing facilities to optimize and consolidate the manufacturing footprint. Next slide please.